The clock is ticking…

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06/27/2019 | 03:55 pm
The signs are accumulating that a rate cut is coming. Yesterday, San Francisco Fed President Daly expressed concern about low inflation in the United States and said the next few weeks will be crucial in determining whether monetary easing is warranted.

It seems that it is just a matter of months, and even weeks : according to San Francisco Fed President Mary Daly, the Fed might act in the next few weeks to counteract weak inflation pressures and uncertainty over U.S. trade policy, she said at an event in New York on Wednesday.

This comes at a time when a flurry of mixed economic data is being released. Today, new figures showed that U.S. economic growth accelerated in the first quarter at a 3.1 percent annualized rate, mostly due to an uptick in exports, and spending in defense, but it also showed there is some weakness in domestic demand. Excluding trade, inventories and government spending, the economy only grew by 1.3%, which is the slowest rise in this measure of domestic demand since 2013.

“This is a challenging time. Risk management is on my mind,” said Daly, quoted by Reuters. She mentioned concerns about the effect tariffs are having on business and consumer confidence as well as the fact that inflation is persistently falling short of the Fed’s 2%-a-year goal. “Growth at or below the economy’s long-run trend will not boost inflation”, she said. However, she pointed out that she had not seen enough hard data previously to support a rate cut.

The Federal Open Market Committee (FOMC) has decided last week to keep its rates unchanged. However, it suggested that it may make some cuts during the year.
Source: Wells Fargo

“The case for somewhat more accommodative policy has strengthened,” said Fed Chairman Jerome Powell. While the Federal Reserve kept its rates unchanged, its language suggests that a drop is due later this year.

The "patience" advocated so far is now replaced by "increased monitoring" of economic indicators in the coming weeks.

All eyes will now be on the G20, when Xi Jinping and Trump will meet. “It’s really trade developments and concerns about global growth that are on our minds,” Mr. Powell said. And many Fed officials want to wait a little longer to see how trade issues develop before cutting rates.
Romain Fournier
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